Chemical Manufacturers: Improve Margins By Focusing on the Business Basics

Chemical Manufacturers: Improve Margins By Focusing on the Business Basics

It’s been a mixed year for chemical manufacturers.  While end-use markets have recovered to their pre-recession levels, growth beyond that level has been slow.  For many North American firms, exports have been especially weak as markets in Europe have all but disappeared.  There are bright spots, such as the surge in demand for ethylene-based products, driven by burgeoning natural gas capacity.  Still, it’s been a year of eking out profitability wherever it can be found.  One of the strategies many chemical manufacturers are using to improve margins is a renewed focus on business basics, the industry best practices that separate market leaders from the rest of the pack.

Common strategies in emphasizing best practices include process intensification (the merging of two or more production processes), a search for greater supply chain efficiency and a renewed drive to pare overhead even more.  While every business process can yield some additional waste and performance improvement, producers often overlook the benefits to be gained from more effective vendor management and purchasing.

Procurement leaders differ on some of the details of what constitutes purchasing excellence, but several themes recur in almost every vendor management or purchasing excellence initiative.  We’ll discuss some of these initiatives shortly.  The common foundations of purchasing excellence initiatives are better communication, more accurate data at all levels and a focus on enforceable, repeatable processes.  Finding a way to achieve these objectives can be a challenge.  Microsoft Dynamics AX ERP for chemical manufacturers provides these foundations, as well as other tools required to implement best-in-class processes that can give you the competitive advantage you need to sustain and grow margins in an already competitive business.

First we’ll discuss some of the tactics you can use to improve purchasing performance and contribute to stronger margins.  Then we’ll look at how Microsoft Dynamics AX ERP can help you, as a chemical manufacturer, to effectively implement some or all of these approaches in your company.

Every company’s list of “best practices” is slightly different, but many of the initiatives are relatively straightforward.  In some cases, re-engineering business processes is the best approach.  In others companies have made changes to business practices or adjustments to culture.  Many best practices can be implemented by taking advantage of capabilities provided by Microsoft Dynamics AX.  Here are a few of the approaches chemical manufacturers have taken:

  • Hire purchasing professionals.  While this recommendation seems obvious, it’s surprising how many firms assign procurement duties to untrained or inexperienced staffers.  You can’t expect employees to excel at a discipline they don’t know.
  • Build a centralized purchasing organization.  Time and again, site audits have shown that decentralized purchasing—or at least purchasing management—leads to inconsistencies in purchased products, conflicting ordering policies and a failure to leverage the combined purchasing power of the entire organization.  Most important is finding the balance between centralized negotiating power and local flexibility to respond to changing local business conditions.  The flexibility of Microsoft Dynamics AX enables you to assign roles and responsibilities wherever they make the most sense for your company.
  • Maximize the consistency and accuracy of data and information used in procurement.  This means developing standard product catalogs, item numbers, lead times, etc.  It also means ensuring that data entered at every step in the procurement process is consistent and accurate.  By employing common processes and functions that you can tailor to your standards and requirements, Dynamics AX ensures data entered and information processed in procurement will be consistent and accurate.
  • Implement a comprehensive vendor management program.  A good vendor management program includes many components such as reducing the number of vendors, consistently monitoring the quality and delivery performance of vendors, creating consistent policies for handling vendors across all facilities and organizations, taking advantage of vendor incentives and discounts and implementing receiving and inspection processes that ensure you get what you ordered.  Microsoft Dynamics AX is designed to support and enforce vendor management procedures and enables you to focus on results rather than rules.
  • Maximize the use of technology.  Using Microsoft Dynamics AX, this means not only exploiting the procurement management capabilities of AX, but also building vendor portals using AX’s enterprise portal functionality, automating the ordering and fulfillment process and shifting the responsibility for on-time delivery and quality to the vendor, where it belongs.

manufacturing, ERP, Microsoft Dynamics, Microsoft Dynamics AX ERP, Chemical Manufacturing, Microsoft Dynamics ERP, Process Manufacturing